I estimate the impact of social security benefits on retirement decisions of rural workers by studying changes in the rules governing old-age benefits for rural workers in Brazil. I focus on a reform implemented in 1991, which reduced the minimum eligibility age, increased benefits, and extended the program to non-heads of households. Because those benefits come with no strings attached -- they are not means or retirement tested -- any behavioral response is a pure income effect. The main finding of the paper is that access to old-age benefits is a strong determinant of retirement of rural workers in Brazil: receiving old-age benefits increases the probability of not working by about thirty-eight percentage points and reduces total hours per week by 22½ h.

2012. Economic Development and Cultural Change 60(2): 399-435One can access the working paper version at MPRA Working Paper 26046. This paper studies the effects of household income on labor participation and school enrollment of children aged 10 to 14 in Brazil using a social security reform as a source of exogenous variation in household income. Estimates imply that the gap between actual and full school enrollment was reduced by 20 percent for girls living in the same household as an elderly benefiting from the reform. Girls' labor participation rates reduced with increased benefit income, but only when benefits were received by a female elderly. Effects on boys' enrollment rates and labor participation were in general smaller and statistically insignificant.The Next-Generation: The Long-Term Effects of a Temporary Boost in Local Government Spending (with S. Litschig)
version September 2013, here.This paper provides regression discontinuity evidence on long-term education impacts of a temporary increase in federal transfers to small local governments in Brazil. Revenues and expenditures for the communities benefi ting from those transfers increased by about 20% from 1982 to 1985. Schooling and literacy gains for school age cohorts during the boost period— established for 1991 in previous work—are shown to persist based on the 2000 census. Children and adolescents who attended school during the early 1990s and the decade of the 2000s show gains of about 0.1 and 0.08 standard deviation across the entire score distribution of two nationwide exams (Prova Brasil and ENEM, respectively) at the end of the 2000s. Younger children who attended school in the 2000s do not show any test score gains at the end of the 2000s. While there is no evidence of persistent public service improvements at the municipal level, we provide evidence on intergenerational transmission of human capital.

This paper deals with institutional persistence in long-term economic development. We investigate the historical record of education in one of the fastest growing and most unequal societies in the twentieth century – the state of São Paulo, Brazil. Based on historical data from an agricultural census and education statistics, we assess the role played by factors such as land concentration, immigration and type of economic activity in determining supply and demand of education during the early twentieth century, and to what degree these factors help explain current educational performance and income levels. We find a positive and enduring effect of the presence of foreign-born immigrants on the supply of public instruction, as well as a negative effect of land concentration. Immigrant farm-laborers established their own community schools, and pressured for public funding for those schools or for public schools. The effects of early adoption of public instruction can be detected more than one hundred years later in the form of better test scores and higher income per capita. These results are suggestive of an additional mechanism generating inequality across regions: the places that received immigration from countries with an established public education system benefited from an earlier adoption of the revolutionary idea of public education.

This paper studies the long-term consequences of the government-sponsored programs of European immigration to Southern Brazil before the Great War. We find that the municipalities closer to the original sites of nineteenth century government sponsored settlements (colônias) have higher per capita income, less poverty and dependence on Bolsa Família cash transfers, better health and education outcomes; and for the areas close to German colonies, also less inequality of income and educational outcomes than otherwise. Since that is a reduced form relationship, we then attempt to identify the relative importance of more egalitarian landholdings and higher initial human capital in determining those outcomes. Our findings are suggestive that more egalitarian land distribution played a more important role than higher initial human capital in achieving the good outcomes associated with closeness to a colônia.

International Finance and Macro

Can Foreign Exchange Intervention Stem Exchange Rate Pressures from Global Capital Flow Shocks?(with Olivier Blanchard and Gustavo Adler)IMF Working Paper 15/159Many emerging market economies have relied on foreign exchange intervention (FXI) in response to gross capital inflows. In this paper, we study whether FXI has been an effective tool to dampen the effects of these inflows on the exchange rate. To deal with endogeneity issues, we look at the response of different countries to plausibly exogenous gross inflows, and explore the cross country variation of FXI and exchange rate responses. Consistent with the portfolio balance channel, we find that larger FXI leads to less exchange rate appreciation in response to gross inflows.

The Behavior of Currencies During Risk-off Episodes(with Reinout De Bock)IMF Working Paper 13/8Episodes of increased global risk aversion, also known as risk-off episodes, have become more frequent and severe since 2007. During these episodes, currency markets exhibit recurrent patterns, as the Japanese yen, Swiss franc, and U.S. dollar appreciate against other G-10 and emerging market currencies. The pattern of these moves can be explained by a combination of fundamental factors, such as the nominal interest rate, the international investment position and measures of exchange rate misalignment, and market-liquidity factors, such as bid-offer spreads and restrictions on international capital flows. We also find that currency performance in a risk-off episode has become more related to a currency?s yield and relationship to broader risks in recent years.Risk-off Episodes and Swiss Franc Appreciation: the Role of Capital FlowsSwiss National Bank, Study Center Gerzensee Working Paper 13.07During episodes of increased global risk aversion, or risk-off episodes, safe haven currencies such as the Swiss franc tend to appreciate. The immediate impact of a risk-off shock is an increase in net private inflows to Switzerland, mostly driven by a reduction in Swiss residents’ net purchases of foreign debt securities and reduced foreign exposure by Swiss banks: Over several quarters, risk-off episodes also appear to be related to reductions in net FDI outflows by Swiss residents. Given that the bulk of capital movements related to risk-off episodes is driven by decisions of Swiss residents, capital flow management policies that discriminate based on the residency of the investor (capital controls) are not likely to be effective at reducing the impact of risk-off episodes. However, prudential policies that limit leveraging or foreign exposure by Swiss banks may diminish the volatility of capital flows during risk-off episodes.

The Curious Case of the Yen as a Safe Haven Currency: A Forensic AnalysisIMF Working Paper 13/228During risk-off episodes, the yen is a safe haven currency and on average appreciates against the U.S. dollar. We investigate the proximate causes of yen risk-off appreciations. We find that neither capital inflows nor expectations of the future monetary policy stance can explain the yen’s safe haven behavior. In contrast, we find evidence that changes in market participants’ risk perceptions trigger derivatives trading, which in turn lead to changes in the spot exchange rate without capital flows. Specifically, we find that risk-off episodes coincide with forward hedging and reduced net short positions or a buildup of net long positions in yen. These empirical findings suggest that offshore and complex financial transactions should be part of spillover analyses and that the effectiveness of capital flow management measures or monetary policy coordination to address excessive exchange rate volatility might be limited in certain cases.

Macroeconomics: The Great Recession

28 Months Later: How Inflation Targeters Outperformed Their Peers in the Great Recession
(B.E. Journal of Macroeconomics Topics, Volume 11, Issue 1, Article 22; working paper version was MPRA Working Paper 29100)Twenty-eight months after the onset of the global financial crisis of August 2008, the evidence on post-crisis GDP growth emerging from a sample of 51 advanced and emerging countries is flattering for inflation targeting countries relative to their peers. The positive effect of IT is not explained away by plausible pre-crisis determinants of post-crisis performance, such as growth in private credit, ratios of short-term debt to GDP, reserves to short-term debt and reserves to GDP, capital account restrictions, total capital inflows, trade openness, current account balance and exchange rate flexibility, or post-crisis drivers such as the growth performance of trading partners and changes in terms of trade. We find that inflation targeting countries lowered nominal and real interest rates more sharply than other countries; were less likely to face deflation scares; and had sharp real depreciations without a relative deterioration in their risk assessment by markets. While the task of establishing causal relationships from cross-sectional macroeconomics series is daunting, our reading of this evidence is consistent with the resilience of IT countries being related to their ability to loosen their monetary policy when most needed, thereby avoiding deflation scares and the zero lower bound on interest rates.

Inflation Targeting and the Crisis: An Empirical Assessment
2010. IMF Working Paper 10/45This paper appraises how countries with inflation targeting fared during the current crisis, with the goal of establishing the stylized facts that will guide and motivate future research. We find that relative to other countries, IT countries lowered nominal policy rates by more and this loosening translated into an even larger differential in real interest rates; were less likely to face deflation scares; and saw sharp real depreciations not associated with a greater perception of risk by markets. We also find some weak evidence that IT countries did better on unemployment rates and advanced IT countries have had relatively stronger industrial production performance. Finally, we find that advanced IT countries had higher GDP growth rates than their non-IT peers, but no such difference for emerging countries or the full sample.

2011. Journal of International Economics 84(1), 48-64.
2009. IMF Working Paper 09/33 (that is the updated version, presented at Oxford Centre for the Analysis of Resource Rich Economies 4th Annual Conference, September 15-16 2010). Exporters of exhaustible resources have historically exhibited higher income volatility than other economies, suggesting a heightened role for precautionary savings. This paper uses a parameterized small open-economy model to quantify the role of precautionary savings for exporters of exhaustible resources, when the only source of uncertainty is the price of the exhaustible resource. The parameterized model fares moderately well at capturing current account balances in both cross-section and time-series data. The results show that the precautionary motive can generate sizable external sector savings, the more so the greater the weight of exhaustible resource revenues in future income.

Exchange Rate Assessments: Methodologies for Oil Exporting Countries (with Rudolfs Bems)
2009. IMF Working Paper 09/281Are the current account fluctuations in oil-exporting countries "excessive"? How should their real exchange rate respond to the evolution of external (and domestic) fundamentals? This paper proposes methodologies tailored to the specific features of oil-exporting countries that help address these questions. Price-based methodologies (based on the time series of real effective exchange rates) identify a strong link between the real exchange rate and the terms of trade, but have relatively limited explanatory power. On the other hand, an empirical model of the current account, which fits oil exporting countries' data well, and an intertemporal model that takes into account the stock of oil reserves provide useful benchmarks for oil exporters' external balances.

The Current Account of Oil-Exporting Countries
IMF Research Bulletin Volume 10, Number 3 September 2009That is a short note summarizing the recent research on the current account of oil-exporting countries, with special emphasis to research by IMF economists.

This paper estimates the household income growth rates implied by food demand in a sample of urban Chinese households in 1993-2005. Our estimates, based on Engel curves for food consumption, indicate an average per capita income growth of 6.8 percent per year in 1993-2005. This figure is slightly larger than the 5.9 percent per year obtained by deflating nominal incomes by the CPI. We attribute this discrepancy to a small bias in the CPI, which is of a similar magnitude to the one often associated with CPI in the United States. Our estimates indicate stronger gains among the poorer households, suggesting that inflation in China was “pro-poor,” in the sense that the increase in the cost of living for poorer households was smaller than for the average one.

Even though institutions are created to protect workers, they may interfere with labor market functioning, raise unemployment, and end up being circumvented by informal contracts. This paper uses Brazilian microeconomic data to show that the institutional changes introduced by the 1988 Constitution lowered the sensitivity of real wages to changes in labor market slack and could have contributed to the ensuing higher rates of unemployment in the country. Moreover, the paper shows that states that faced higher increases in informality (i.e., illegal work contracts) following the introduction of the new Constitution tended to have smaller drops in wage responsiveness to macroeconomic conditions, thus suggesting that informality serves as a escape valve to an overregulated environment.

Latin American countries have experienced cycles of expansionary policies, currency appreciation, and crises. The popularity of appreciations, through their effect on consumers's purchasing power, has been an accepted assumption in the literature despite a dearth of studies on the distributional impact of exchange rate movements. This study computes the welfare effects of exchange rate movements at different points of the income distribution for Brazil and Mexico. It shows that the distributional effects of appreciations split both countries on a regional basis, instead of across income levels. In Brazil, appreciations are found to benefit less or harm more the rural areas; in Mexico, they benefit less or harm more the Northern border states.

The Myth of Post-Reform Income Stagnation: Evidence from Brazil and Mexico (with Marcos Chamon), 2012. Journal of Development Economics 97: 368-386.
2008. This article was cited by O Globo, O Estado de Sao Paulo, and Citigroup's economic research. IMF Working Paper 08/197 (1998) and MPRA Working Paper 28532 (2011) here).Economic policies are often judged by a handful of statistics, some of which may be biased during periods of change. We estimate the income growth implied by the evolution of food demand and durable good ownership in post-reform Brazil and Mexico, and find that changes in consumption patterns are inconsistent with official estimates of near stagnant incomes. That is attributed to biases in the price deflator. The estimated unmeasured income gains are higher for poorer households, implying marked reductions in "real" inequality. These findings challenge the conventional wisdom that post-reform income growth was low and did not benefit the poor.

The Myth of Post-Reform Income Stagnation in Brazil (with Marcos Chamon)
2006. IMF Working Paper 06/275This paper uses Engel curves to estimate real income growth in Brazil. The estimated per capita household real income growth in metropolitan areas during 1987-2002 is about 4½ percent per year, well above the "headline" growth of 1½ percent obtained by deflating nominal incomes by the CPI. This suggests a substantial CPI bias during that period, likely owing to one-off effects of trade liberalization and inflation stabilization. The estimated unmeasured gains are higher for poorer households, implying a marked reduction in "real" inequality. This finding challenges the conventional wisdom that post-reform real income growth in Brazil was low.